Bank & Thrift Regulation & Enforcement

The Wall Street Journal recently reported that the management component of the CAMELS rating for Wells Fargo Bank, NA had been downgraded to a “3” during 2017. A “3” rating of management means that the capabilities of management or the board of directors “may be insufficient for the type, size or condition of the institution.” At best, a “3” rating of management equates to a C minus on a report card.Continue Reading Wells Fargo’s CAMELS Rating Leaked

The Community Reinvestment Act (CRA) was enacted in 1977 to prevent redlining and to encourage banks and savings associations (collectively, banks) to help meet the credit needs of all segments of their communities, including low- and moderate-income neighborhoods and individuals. Today, CRA and its implementing regulations require federal banking regulators to assess the record of each bank in fulfilling its obligation to the community and to consider that record in evaluating and approving applications for charters, bank mergers, acquisitions, and branch openings.

On December 21, 2017, under the direction of Acting Director Mick Mulvaney, the Consumer Financial Protection Bureau (the “CFPB”) announced that it intends to reopen the rulemaking process to reconsider various aspects of the CFPB’s 2015 Home Mortgage Disclosure Act Rule (the “HMDA Rule”). In reopening the rulemaking process for the HMDA Rule, the CFPB intends to reconsider (i) the institutional and transactional coverage tests and (ii) certain other aspects of the HMDA Rule’s discretionary data points. Continue Reading New Leadership: The CFPB Announces Its Plan to Reassess the CFPB’s 2015 HMDA Rule

On October 12, 2017, the OCC issued OCC Bulletin 2017-40 announcing the release of its Policies and Procedures Manual 5000-43 (PPM 5000-43), which outlines the OCC’s policy and framework for how the agency determines Community Reinvestment Act (CRA) ratings when there’s evidence of discriminatory or other illegal credit practices directly related to a bank’s CRA lending activities.

Here are our observations and takeaways on the PPM 5000-43:

PPM 5000-43 provides that the OCC “only considers lowering the composite or component performance test rating of a bank if the evidence of discriminatory or other illegal credit practices directly relates to the institution’s CRA lending activities.”

Any OCC determination to lower an institution’s CRA composite or component rating will be guided by two principles: (1) there must be a “logical nexus” between the assigned ratings and evidence of discriminatory or other illegal credit practices in the bank’s CRA lending activities to ensure alignment between the ratings and the bank’s actual CRA performance; and (2) full consideration is given to the remedial actions taken by the bank.

Prior to the lowering of a bank’s CRA composite or component rating, OCC examiners must provide “strong evidence of quantitatively and qualitatively material instances of discriminatory or illegal credit practices directly related to CRA lending activities that have resulted in material harm to customers.”

The OCC will assign CRA ratings in light of the bank’s entire record of performance, “including the cumulative impact of supervisory or enforcement actions taken against a bank,” and CRA ratings generally will not be lowered solely based on the existence of evidence of discriminatory or other illegal credit practices prior to commencement of the CRA evaluation if the bank has remediated or taken appropriate corrective actions to address them.

In our view, this would indicate that the OCC will not take into account, for purposes of evaluating a bank’s CRA compliance, any alleged unfair or deceptive practices that are not directly related to a bank’s lending activities.

On October 5, 2017, the Consumer Financial Protection Bureau (“CFPB”) released its nearly 1,700-page final rule for short-term loans (“Payday Lending Rule”). Notably, almost simultaneously with the CFPB’s announced Payday Lending Rule, the Office of the Comptroller of the Currency (“OCC”) rescinded its longstanding Guidance on Supervisory Concerns and Expectations Regarding Deposit Advance Products (“DAP Guidance”), theoretically opening the door for banks to offer short-term credit products to customers with less regulatory burden.

When will the Payday Lending Rule become effective?

While certain provisions of the Payday Lending Rule relating to the registration of information systems will become effective 60 days after the Payday Lending Rule is published in the Federal Register, the rest of the Payday Lending Rule will become effective 21 months after publication in the Federal Register. Consequently, the Payday Lending Rule will not become effective until sometime during the summer of 2019. Given that the term of the current CFPB Director expires in mid-2018, and will presumably be replaced by a director less hostile to the payday loan industry, some industry commentators speculate that the Payday Lending Rule, at least in its present form, may never become effective. Continue Reading The CFPB’s Payday Lending Rule: An Opportunity in Disguise?